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Fitch: Bank Loans Dominate European Corporate Debt despite Record Bond Issuance
November 29, 2016 / 10:51 AM / in a year

Fitch: Bank Loans Dominate European Corporate Debt despite Record Bond Issuance

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Continued Dependence on Banks Limits QE's Effect here LONDON, November 29 (Fitch) Total corporate debt stocks in Europe remain dominated by bank loans despite corporate bond issuance being on track for an all-time record this year, says Fitch Ratings. Bonds account for only 12% of total funding for eurozone corporates, having risen slowly from 7% in 1999. The comparable share in the UK is more than twice as high at 28%. By contrast, in the US, with its well-established and deep capital markets, bonds account for 44% of corporate debt stocks. French corporates have the highest share of bonds in the eurozone (22%). The lower bond ratio for German corporate debt stocks (11%) most likely reflects the large number of Mittelstand companies, the vast majority of which still rely on relationship banks. In Italy and Spain, the corporate landscape is dominated by SMEs, partly explaining the modest stock of corporate bonds compared with bank loans. Although debt stocks show only a slow transition to a more diversified funding market, large multinationals have broken with their historical dependence on banks and many now use bonds as their base-load funding. A sample of more than 200 Fitch-rated European companies had an average bond funding ratio of 82% at FYE14, based on balance-sheet data. "Europe's corporates are being encouraged to borrow at cheap rates by the European Central Bank and the Bank of England to help stimulate sluggish European economic growth. While this has encouraged issuance, many companies have already locked in long-term funding at historically low rates and have limited need for further funding. This is partly because actual and forecast capex remains modest as companies await more signs of economic upturn," said Monica Insoll, Head of Credit Market Research at Fitch. In contrast to the booming corporate bond issuance, bank lending to corporates remains flat despite both ECB support and the most pronounced period of bank deleveraging having been completed. Bank lending to companies in France and Germany has picked up in the last year, but the trend has been flat or slightly negative for Italian corporates. Loan volumes to Spanish corporates have declined sharply since 2011, partly reflecting the scale of deleveraging, especially in the property sector. The report, European Corporate Funding: Continued Dependence on Banks Limits QE's Effect, is available by clicking the link above. Contacts: Monica Insoll Managing Director Fitch Ratings Limited 30 North Colonnade London E14 5GN Roelof Steenkamp Senior Director +49 69 768 076 113 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Related Research ECB TLTROs: Lending Stimulus Yet to Materialise here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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